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Federal Student
Learn the Basics and Manage Your Debt
                                         WORKING DRAFT

Your Federal Student Loans:                      REPAY
Learn the Basics and Manage                      What You Need to Do                         12
Your Debt                                        Exit counseling                             12
                                                 Choosing a repayment plan                   12
Introduction                             2
                                                 Estimated Monthly Payments for
Federal student aid process:             2
                                                 Direct and FFEL Stafford Loans              13
Prepare, Apply, Receive, Repay
                                                 Consolidation Loans                         13
                                                 How can consolidation help me manage
PREPARE                                          my debt?                                    13
Managing Your Finances                   3       Is there a downside to consolidation?       13
What is federal student aid?             3       Making Your Monthly Payments                14
What types of federal student loans              I can’t make my payments                    14
are there and how much can I borrow?     3       Why is this a problem?                      14
Federal student loans for you            5       I forgot to send my payment.
Federal student loans for your parents   5       Should I send partial payment?              14
Before I apply, can I find out how               Sample communication log                    14
much aid I might be eligible for?        6
Why get a federal student loan?          6       Preventing Default                          14
What about private (non-federal)                 Need to Take a Break or
student loans?                           6       Can’t go to School Full-Time                15
Who can get federal student loans?       7
                                                 Loan Discharge or Forgiveness               16
                                                 What qualifies my loan for discharge
APPLY                                            or forgiveness?                             16
How do I apply?                          8       Your Rights as a Borrower                   16
Three-step process                       8       Your Responsibilities as a Borrower         16
                                                 Other Tips                                  16
RECEIVE                                          Appendix A Glossary                         17
What Your Award Letter Means 9                   Appendix B Informed Borrowing:
Should I accept all the money                    Selecting Loans and Selecting Lenders       19
included in the award letter?            9       Appendix C Calculating Your Budget          20
I understand my award letter and                 Appendix D Perkins Loan Discharge
chose to receive federal student loans           and Cancellation Summary Chart              21
in addition to my scholarships and               Appendix E Stafford and PLUS Loan
grants. What happens next?               10      Discharge and Cancellation Summary Chart    22
How do I receive the money?                      Appendix F Award scenarios, 4-yr. public,
What can I use my student loan                   on-campus housing                           23
money for?                               10
                                                 Appendix G Award scenarios, 4-yr. public,
I don’t need to borrow all this
                                                 off-campus housing                          24
money? Can I return some of it?          10
What if I still need more money?
Where should I look?                     10
Keep Track of How Much You’re
Borrowing                     10
How can I graduate with less debt?       11
Learn how to manage your money
and change your spending habits          11
Other things to remember                 11

                                            WORKING DRAFT

Your Federal Student Loans:                          your education. To help you navigate through this
                                                     process, this publication follows the federal student aid
Learn the Basics and Manage                          lifecycle. That is, from the point you’re first
Your Debt                                            considering federal student loans through repaying your
Introduction                                         You’ll find that each section provides essential
                                                     information for every stage of the process. During your
When you’re considering college—or some              entire college career you’ll be in one of these stages, so
form of education after high school—financial        this publication will always be relevant to your
aid almost always comes to mind. How much            situation.
aid you’ll receive may be a deciding factor on
whether or not to attend college or if you’ll be     The four stages in the federal student aid process are
able to attend the college of your choice.
                                                     Prepare/Aware - what you need to know about federal
When considering how to pay for your                 student aid.
education, your first need to maximize               Apply - how to apply and what happens when you
scholarships and grants. If you’ve already done      apply for federal student aid.
that and still need more money for college, a        Receive - when and how do you receive your aid.
federal student loan (a loan from or guaranteed      Repay - whom do you repay the loan to and what to do
by the federal government) is your best option.      if you’re having difficulty repaying your loan.

Every year, more than $90 billion in federal         If you have questions at any point of the federal student
student aid is available to students. The fact is,   aid process, you can always call us at 1-800-4-FED-
almost everyone is eligible to receive a federal     AID, talk to your high school counselor or contact the
student loan because not all loans are based on      financial aid office at the school you plan to attend.
financial need.

You can receive subsidized or unsubsidized
loans under our largest type of loan, Stafford
Loans. Those who have the most need will be
eligible to receive a subsidized Stafford Loan
(the government pays the interest while you’re
in school at least half-time and during grace
and deferment periods). Others may be eligible
to receive an unsubsidized Stafford Loan (you
must pay all the interest that accrues while
you’re in school or can have it added to your
loan, or capitalized).

Both types of loans have the same benefits—a
low, fixed interest rate of 6.8 percent; generous
repayment periods, you begin repayment if you
go to school less than half-time, leave school,
or after you graduate; there are deferment and
forbearance options; and no credit checks.

As with any financial decision, you should
understand the process to ensure you make
informed decisions when it comes to paying for

                                          WORKING DRAFT

                PREPARE                              student aid can be one of the following: grants (free
                                                     money that doesn’t have to be repaid, unless you
                                                     withdraw from school), work-study (you earn money
Managing Your Finances                               to pay for your education), or loans (you borrow money
Paying for a postsecondary education (college        for school, which you must repay with interest). The
or career school) is an investment in your future    main provider of financial aid is the federal
that requires planning. It’s a big expense; so       government. Last year, students received $92 billion in
make sure you discuss monetary issues with           federal student aid.
your family openly and early and don’t wait
until you get to school. You can also talk to        You can also apply for aid from the college and your
your guidance counselor at your school; they         state. Many students are going to private lenders or
often have helpful information about planning        online to look for financial aid. Remember you should
for a postsecondary education. Be sure to have       always exhaust scholarships and grants and federal
a plan in place to find out which college            student loans before turning to private or alternative
expenses (tuition, room and board, books,            student loans, which often carry high and variable
clothing, computer, extracurricular activities,      interest rates and may require credit checks. A variable
etc.) your family will cover and which ones          interest rate is an interest rate that changes, usually
will be your responsibility. You’ll be spending      annually. Never use a credit card to pay for your
a lot of money during your college years and         education.
will need to create a budget to maintain control
of your financial situation, limit spending and       Funds to pay for your education should first come
borrow wisely. Below is a sample of a list of                   from scholarships and grants
some expenses you might incur.

    1) Fees: Fees depend on the school you’re       Money you do not have to     Available personal savings
       attending. This list can be obtained         repay                        Scholarships and grants
       directly from the school. Fees include                                    (may have special
       activity fees, parking decal fees, etc.                                   requirements to maintain
    2) Books: Books can be expensive. On                                         eligibility)
       average, each book for a class can cost                                   Work-study earnings
       $60, although many cost much more. If        Cheapest loans               Subsidized and
       you’re not certain, estimate $60 per                                      unsubsidized federal student
       book and multiply it times the number                                     loans (low interest rates and
       of classes. A good estimate is $500 per                                   comfortable repayment
       semester.                                                                 plans)
    3) Supplies: Supplies can include book          Expensive loans              Private student loans (terms
       bags, notebooks, pens, pencils, paper,                                    and conditions vary, be sure
       folders, stapler, desk organizing system                                  to read fine print)
       (trays, pen holder, etc.), computer                                       Credit cards (high interest
       paper, etc.                                                               rates, one of the fastest
    4) Room materials: Materials can                                             ways to increase your debt)
       include such items as a computer,
       printer, tape recorder, reading lamps,
       microwave, refrigerator, linens, etc.         What types of federal student loans are there and
    5) Clothing, cell phone, entertainment.          how much can I borrow?

                                                     Types of loans:
What is federal student aid?
Federal student aid, or financial aid, is money      • Federal Perkins Loans are:
for students to help pay for college. Federal

                                          WORKING DRAFT

 --Made through participating schools to                 education. These loans are made through both the
undergraduate, graduate and professional                 Direct Loan and FFEL programs mentioned above.
degree students.
 --Offered by participating schools to students          • Consolidation Loans (Direct or FFEL) allow student
who demonstrate financial need.                          or parent borrowers to combine multiple federal
 --Made to students enrolled full-time or part-          education loans into one loan with one monthly
time.                                                    payment.
 --Repaid by you to your school.
                                                         NOTE: Documents for federal student loans, from
• Stafford Loans are for undergraduate,                  private lenders or the Department of Education, will
graduate and professional degree students. You           state somewhere on the form that it is a federal student
must be enrolled as at least a half-time student         loan. Some private student loan lenders have forms that
to be eligible for a Stafford Loan.                      look similar to the federal forms and that might confuse
                                                         some students.
There are two types of Stafford Loans: subsidized and
unsubsidized. You must have financial need to receive
a subsidized Stafford Loan. Financial need is not a
requirement to obtain an unsubsidized Stafford Loan.
The U.S. Department of Education will pay (subsidize)
the interest that accrues on subsidized Stafford Loans
during certain periods. These loans are made through
one of two U.S. Department of Education programs:

 William D. Ford Federal Direct Loan (Direct
 Loan) Program. Loans made through this program
 are referred to as Direct Loans. Eligible students
 and parents borrow directly from the U.S.
 Department of Education at participating schools.
 Direct Loans include Direct Subsidized Loans and
 Direct Unsubsidized Loans, Direct PLUS Loans,
 and Direct Consolidation Loans. You repay these
 loans directly to the federal government.

 Federal Family Education Loan (FFEL)
 Program. Loans made through this program are
 referred to as FFEL Loans. Banks or private
 lenders provide funds that are guaranteed by the
 federal government. FFEL Loans include
 subsidized and unsubsidized FFEL Stafford Loans,
 FFEL PLUS Loans and FFEL Consolidation
 Loans. You repay these loans to the bank or private
 lender that made you the loan.

• PLUS Loans are loans parents can obtain to
help pay the cost of education for their
dependent undergraduate children. In addition,
graduate and professional degree students may
obtain PLUS Loans to help pay for their own

                                                   WORKING DRAFT

Federal student loans for you
Loan Program           Eligibility            Award Amounts                               Interest Rates              Lender/Length of
Federal Perkins        Undergraduate and      Undergraduate—up to $4,000 a year           5 percent                   Lender is your school
Loans                  graduate students      (maximum of $20,000 as an undergraduate)
                                                                                                                      Repay your school or its
                                              Graduate—up to $6,000 a year (maximum of                                agent
                                              $40,000, including undergraduate loans)
                                                                                                                      Up to 10 years to repay,
                                              Amount actually received depends on                                     depending on amount
                                              financial need, amount of other aid,                                    owed
                                              availability of funds at school
Direct Stafford        Undergraduate and      First Year (freshman)                       Fixed rate of 6.8 percent   Lender is the U.S.
Loans                  graduate students;     $3,500 for dependent students                                           Department of Education;
                       must be enrolled at    $7,500 for independent students (maximum    The federal government      repay the Department
Subsidized             least half-time        $3,500 subsidized)                          pays interest on
(financial need is                                                                        subsidized loans during     Between 10 and 25 years
required)                                     Second Year (sophomore)                     school and certain other    to repay, depending on
                                              $4,500 for dependent students               periods                     amount owed and type of
Unsubsidized                                  $8,500 for independent students (maximum                                repayment plan selected
(financial need is                            $4,500 subsidized)                          The borrower pays all
NOT required)                                                                             interest on unsubsidized
                                              Third Year (junior) and beyond              loans
                                              $5,500 for dependent students
                                              $10,500 for independent students (maximum
                                              $5,500 subsidized)

                                              Graduate and Professional
                                              $20,500 (maximum $8,500 subsidized)

                                              Aggregate Loan Limits: Maximum Total
                                              Outstanding Loan Debt When You Graduate

                                              $23,000 for dependent students
                                              $46,000 for independent students (maximum
                                              $23,000 subsidized)

                                              Graduate and Professional
                                              $138,000 (maximum $65,000 subsidized)

FFEL Stafford          Same as above          Same as above                               Same as above               Lender is a bank, credit
Loans (subsidized                                                                                                     union or other participating
and unsubsidized)                                                                                                     private lender

                                                                                                                      Repay the loan holder or
                                                                                                                      its agent

                                                                                                                      Between 10 and 25 years
                                                                                                                      to repay, depending on
                                                                                                                      amount owed and type of
                                                                                                                      repayment plan selected
Direct and FFEL        Graduate and           Student’s Cost of Attendance - Other aid    Direct PLUS has a fixed     Same as for Direct and
PLUS Loans for         professional degree    student receives                            rate at 7.9 percent         FFEL Stafford Loans
Graduate and           students enrolled at   ______________________________                                          above
Professional Degree    least half-time        = Maximum loan amount                       FFEL PLUS has a fixed
Students                                                                                  rate at 8.5 percent
                       Must not have
                       negative credit                                                    Borrower pays all
                       history                                                            interest

Federal student loans for your parents
Direct and FFEL        Parents of dependent   Student’s Cost of Attendance - Other aid    Direct PLUS has a fixed     Same as for Direct and
PLUS Loans for         undergraduate          student receives                            rate at 7.9 percent         FFEL Stafford Loans
parents                students enrolled at   ______________________________                                          above
                       least half-time        = Maximum loan amount                       FFEL PLUS has a fixed
                                                                                          rate at 8.5 percent
                       Must not have
                       negative credit                                                    Borrower pays all
                       history                                                            interest
                                          WORKING DRAFT

Before I apply, can I find out how much aid                       When you’re ready to apply for aid, FAFSA4caster can
I might be eligible for?                                          populate your federal student aid application, FAFSA
                                                                  on the Web, and reduce the time it will take for you to
Yes, you can get an early estimate of your                        complete your application. You can access
federal student aid eligibility by using                          FAFSA4caster at www.FederalStudentAid.ed.gov, click
FAFSA4caster, an online tool designed to help                     on FAFSA4caster.
students and families financially plan for
college. After you complete FAFSA4caster,                         Why get a federal student loan? What about private
your estimated aid eligibility will be displayed                  (non-federal) student loans?
instantly. The information includes the types of                  While every student wants scholarships and grants, not
federal student aid you might be eligible to                      everyone can cover the entire cost of college or career
receive and estimated award amounts. If you                       school through those options. Loans can make your
plan to attend school full-time at a four-year                    education possible and affordable. A federal student
public school, it shows the types of federal                      loan is a low-cost loan and a better option than a private
student aid that might help cover that cost,                      student loan because:
listing your estimated award amount for any
federal grant programs and providing examples
of award packages with in-state and out-of-state
costs (see Appendix F).
                        Federal Student Loan                                Private student loan
           You will not have to start repaying your federal    Many private student loans require payments
           student loans until you leave school, attend less   while you are still in school.
           than half time or graduate.
           The interest rate on a federal student loan is      Private student loans can have variable interest
           fixed, currently at 6.8 percent, and almost         rates greater than 18 percent.
           always lower than on a private loan—and much
           lower than on a credit card!

           Students with greater financial need might          Private student loans are not subsidized. No
           qualify to have the government pay their            one pays the interest on your loan but you.
           interest while they are in school. This is called
           a subsidized loan.

           You don’t need a credit record to get a federal     Private student loans may require an
           student loan (except for PLUS Loans for             established credit record. The cost of a private
           graduate and professional students). Federal        student loan depends on your credit score,
           student loans help you establish a good credit      which you may not yet have as a student.

           You don’t need a cosigner to get a federal          You need a cosigner to get the best possible
           student loan.                                       deal.

           Free help is available at 1-800-4-FED-AID.          Find out if there is free help.

           Interest might be tax deductible.                   Interest is not tax deductible.

           Loans can be consolidated into the Direct or        Private student loans can’t be consolidated into
           FFEL Loan Consolidation program that has            Federal Loan Consolidation Program.
           comfortable repayment plans and other
           benefits. See www.loanconsolidation.ed.gov
           for more information.                                                                                          6
                                           WORKING DRAFT

Private loans are marketed directly to students     You MUST submit the Free Application for Federal
without counseling. In short, private loans are     Student Aid (FAFSA) at www.fafsa.ed.gov to receive
substantially more expensive than federal           federal student aid.
student loans. They generally have higher
interest rates that are variable and may
substantially increase your repayment amount
and might depend on your credit score. Private
loans can also have prepayment penalty fees. In
contrast, federal student loans have lower, fixed
interest rates, generous repayment plans, no
prepayment penalties and no credit checks.

Remember that private loans and credit cards
are consumer loans, and are very expensive
ways of financing your education.

Who can get federal student loans?
To be eligible for federal student aid, you must

• be a U.S. citizen or eligible noncitizen (for
most programs) with a valid Social Security
number (SSN);

• be working toward a degree or certificate;

• have a high school diploma or a General
Educational Development (GED) certificate;
pass an approved ability-to-benefit (ATB) test
(if you don’t have a diploma or GED, a school
can administer a test to determine whether you
can benefit from the education offered at that
school); meet other standards your state
establishes that we have approved; complete a
high school education in a home school setting
approved under state law;

• register (if you haven’t already) with the
Selective Service, if you’re a male between the
ages of 18 and 25;

• maintain satisfactory academic progress once
in school.

These are general eligibility requirements. To
get more detailed information, see Funding
Education Beyond High School: The Guide to
Federal Student Aid at

                                        WORKING DRAFT

                  APPLY                           school(s) will send you a financial aid award letter that
                                                  lists the grants, scholarships, work-study, and loans for
                                                  which you’re eligible. The letters aren’t standard, vary
How do I apply?                                   in the amount of information included, and are based on
As with all federal student aid (grants, work-    the school’s cost of attendance (all direct and indirect
study and loans), you apply for a federal         expenses, including tuition, fees, room and board,
student loan by completing the Free               books, transportation, and supplies) minus the EFC.
Application for Federal Student Aid (FAFSA).      Some schools might include optional private loans in
A separate loan application isn’t required.       your award letter. Before you accept any loans, make
                                                  sure you understand the source of your loan
Three-step process                                (government or private) as well as the terms of the loan.
Step 1
Collect the documents needed to apply.            If your school participates in the Direct Loan Program,
Although not all aid is need-based, you’ll need   the U.S. Department of Education is your lender. If
to include information on your and your           your school participates in the FFEL Program, the
parents,’ if applicable, income tax returns and   federal government guarantees loans made under the
W-2 forms (and other records of income) to        FFEL Program but you’ll have to choose a lender
help determine what type of aid you should        (either your own bank or one your school suggests) to
receive. A full list of what you need is at       fund your loan. No additional applications are needed.
www.fafsa.ed.gov. Tax return not completed at     Remember, you have the right to work with a lender of
the time you apply? Estimate the tax              your choice. You’re not limited to your school’s
information, apply, and correct information       preferred lender list because, either way, the federal
later.                                            government guarantees your loan. For more
                                                  information on selecting lenders see Appendix A
Complete the Free Application for Federal
Student Aid (FAFSA) at www.fafsa.ed.gov.          NOTE: Because some school and state student aid is
Complete the FAFSA on or after Jan. 1 of the      also based on the data you provided on your FAFSA
year you expect to start college. When you        and, because of funding limitations, provided on a first
complete the application online, you will have    come first served basis, submit your FAFSA as soon as
the option of receiving you personal              possible after Jan. 1 to be considered for this aid.
identification number or Federal Student Aid
PIN. The PIN serves as your signature and will
give you access to your student aid records.
Keep it to yourself and keep it safe!

Step 2
Review the Student Aid Report (SAR)—the
summary of your FAFSA. After you submit
your FAFSA, you will receive your SAR from
the U.S. Department of Education. Review
your SAR, and if you make changes or
corrections, submit your SAR for reprocessing.
Your complete, correct SAR will contain your
Expected Family Contribution (EFC)—the
number used to determine your federal student
aid eligibility.

Step 3
Review your school’s financial aid award
letter. Once you have been admitted, the

                                            WORKING DRAFT

                                                      Before you accept any aid, you should

What Your Award Letter Means                          • get a breakdown of the direct expenses (tuition, room,
                                                      board, and fees) and estimates of indirect expenses
The schools you included in your application          (travel, books, etc.) for one year of college;
will receive the results of your FAFSA. They          • know the actual net amount (cost of attendance minus
will use this information and the cost to attend      financial aid) that you’ll have to pay to attend one year
their institution to put together an award            of college;
package for you which will include federal            • know what amount of awarded financial aid that
student loan and grant money you’re eligible          doesn’t have to be repaid such as scholarships and
for, state aid, institutional aid and other sources   grants and the conditions under which they are
of aid to help pay your costs. Some schools           renewable each year;
might include private or commercial loans.            • know the amount of work-study and the conditions
Make sure you understand what you’re                  under which one has to fulfill the work-study;
receiving and what the terms are                      • find out which loans you’re eligible for;
                                                      • find out which loans your parents can get to help pay
Every loan award package is individually              for your education;
tailored. Contact the school, your lender or the      • know the interest rates, loan terms, monthly
U.S. Department of Education, if you have any         repayment amounts, and total repayment amounts of
questions or need clarification. Everyone is          your loans;
here to serve you. You’re the customer and            • know where you can get additional information or
there are options out there for you.                  have your loan questions answered.

Not all award packages are the same. You’ll           Always consider what you’ll have to repay. Repayment
receive different award packages from different       of student loans should only be a small percentage of
schools.                                              your salary. If you expect to pay more than 15 percent
                                                      of your annual salary for student loans, you might have
Should I accept all the money included the            difficulty making your monthly payments. Ask your
award letter?                                         school’s financial aid office for starting salaries of
Only borrow what you need and what you’ll be          recent graduates in your field of study to get an idea of
able to repay. Remember that student loans            how much you are likely to earn after you graduate.
have to be paid after your leave school, attend       Estimates of salaries for different careers are available
less than half time or graduate. When you             in the Occupational Outlook Handbook at
receive your award letter, start by accepting         www.bls.gov/oco and research employment
scholarships and grants you’re eligible for—be        opportunities advertised in the area where you plan to
sure you understand any                               live.
conditions/requirements to receiving these “free
funds.” Then accept the loans with the most           You should know the full cost of attendance for the
comfortable terms; that is, federal student loans     total number of years you plan to attend school. This
(subsidized and unsubsidized federal student          will give you an idea of the total cost of the federal
loans from the federal government or                  student loans you may be taking out. Once you have an
guaranteed by the federal government), and            idea of the total amount you’ll end up borrowing, you
state aid. If you see private or commercial loans     can see what the estimated monthly payment amount
in your award letter ask why this type of loan        will be under different repayment plans on page 13.
was included, find out the terms, and reject the
private loan if the terms aren’t favorable.
Exhaust all options before looking into private
loans. Private loans and credit cards should be
your last resort.

                                           WORKING DRAFT

I understand my award letter and chose to            after your loan has been disbursed. These timeframes
receive federal student loans in addition to         are explained in the promissory note you sign before
my scholarships and grants. What happens             your loan is disbursed. You can also contact your
next?                                                financial aid office for more details.
To receive a federal student loan you must first
sign a promissory note. The promissory note is       What if I still need more money? Where should I
a legally binding agreement that contains the        look?
terms and conditions of the loan and explains        Try these free sources of information:
how and when it should be repaid. By signing             • other federal agencies: www.students.gov
it, you are promising to repay your student              • your state education agency
loan. You should keep the promissory note and            • a college or career school financial aid office
any other loan documents in a safe place for             • a high school or TRIO counselor
future reference. You will also be notified              • your library’s reference section
about entrance counseling before the loan is             • FREE online scholarship searches
disbursed. This is an information session
                                                         • foundations, religious or community
explaining your responsibilities and rights as a
                                                             organizations, local businesses, or civic groups
student borrower. A master promissory note
                                                         • organizations (including professional
may be available at some schools; it is valid for
                                                             associations) related to your field of interest
10 years and can be signed electronically.
                                                         • ethnicity-based organizations (for example,
                                                             www.chci.org for Hispanic students)
How do I receive the money?
Generally, your loan funds will be paid directly         • your employer or your parents’ employers
to the school in two disbursements. Your                 • other federal agencies give scholarships to
school usually credits your loan payment to                  students in exchange for committed
school charges on your account (tuition and                  employment.
fees, room and board, and other authorized
charges). If the loan money exceeds your             Some companies may offer to search for money for
school charges, the school will pay you the          college for a fee. Remember, don’t pay for help to find
credit balance by check or other means. Your         money for college and keep all your personal
school should notify you in writing each time        information safe. Don’t share it with anyone! For more
they disburse part of your loan money. Unless        information on how to avoid fraud and identity theft,
you authorize your school to hold the credit         Save Your Money, Save Your Identity is available at
balance for you, your school must pay it to you      www.FederalStudentAid.ed.gov.
within 14 days after the start of classes for that
academic term or payment period.                     Keep Track of How Much You’re
What can I use my student loan money for?            Keep good records. Repaying your student loans is a
You may use the loan money you receive to            serious matter and it’s important to keep accurate,
pay for your education expenses at the school        accessible records. Open a file folder for each loan and
that processed your loan. Education expenses         file all paperwork such as copies of promissory notes
include school charges such as tuition; room         and correspondence from the lender. When you enter
and board; fees, books, supplies, equipment;         repayment; you’ll need to add to this file any coupon
dependent childcare expenses; transportation         booklets, deferment and/or forbearance paperwork and
and rental or purchase of a personal computer.       notes of any phone calls to the lender. You should also
                                                     use the U.S. Department of Education’s National
I don’t need to borrow all this money. Can I         Student Loan Data System (NSLDS) at
return some of it?                                   www.nslds.ed.gov, the central database for federal
Yes, you may cancel all or part of your loan at      student aid. This database keeps track of all your
any time by notifying your school before your        federal student loans and, once you’ve received a
loan is disbursed, and within certain timeframes     federal student loan, you’ll be able to access your
                                           WORKING DRAFT

information using your Federal Student Aid         You can also start at a less expensive school or
PIN. Every student that submits a FAFSA            community college before transferring to a four-year
receives this personal identifier and will then    college. Just make sure the four-year school you’re
have access their information.                     interested in accepts course credits from the community
                                                   college you’re attending.
Get organized—keep a file, either a paper or
computer file or both (don’t forget to back up     Learn how to manage your money and change your
your computer frequently). Your file should        spending habits. Resist the urge to get more than one
include                                            credit card. A credit card can help you build a credit
                                                   history, if you use it wisely. But don’t spend more than
    •   Financial aid award letters                you can afford to pay and try to use your credit card for
    •   Loan counseling materials (entrance        emergencies only. If you do decide to get a credit card,
        and exit counseling)                       make sure you understand how it works and read the
    •   Promissory note(s)                         fine print. You should also open a checking account and
    •   Amount of your student loans,              learn how to balance your checkbook.
        including the amount that is disbursed
        each semester or year (you may access      A few more tips to save money:
        this information at www.nslds.ed.gov)          • Buy used books instead of new ones whenever
    •   Name, address, phone number, and                  possible.
        Web site of your lender or loan servicer       • Use you prepaid meal plan instead of eating
        (the entity to whom you send your                 out.
        monthly payments to)                           • Take advantage of free activities sponsored by
    •   Loan disclosure and payment schedule              your school.
        sent to you by your lender before you          • Resist impulse buying. Buy what you need, not
        start to repay your loan                          what would be nice to have. When you do
    •   Monthly payment stubs (if you pay by              shop, use coupons and shop for sales.
        check) or a printout of proof of               • Know what calls your cell phone covers and
        payment (if you pay electronically)               stay within your free minutes.
    •   Detailed information, including                • Brew your own coffee.
        account numbers for each of your loans
    •   Notes about your questions, the            Other things to remember
        answers and the person you talked to       If you’re preparing to leave school, withdraw early or
    •   Your “paid in full” promissory note        transfer to another school you must remember to notify
        when you’re done repaying your             your lender and the school you’re currently attending.
        student loans                              The U.S. Department of Education is your lender for
                                                   Direct Loans; a different agent is your lender for FFEL
How can I graduate with less debt?                 Loans.
Debt adds up quickly, so keep an eye on it. If
accumulating too much debt is your concern         Your award letter or financial aid package doesn’t
you can                                            transfer with you if you go to another school. You must
                                                   begin the application process at your new school.
    •   search for more scholarships and           Contact the financial aid office immediately.
    •   work while you’re attending school;        When you withdraw early, attend school less than half-
                                                   time, or graduate, you enter repayment. We discuss
    •   change your spending habits; and
                                                   repayment in the next section.
    •   consider whether to change to a less-
        expensive school.

                                         WORKING DRAFT

                  REPAY                                   of the plan when your outstanding loan balance
                                                          is higher.
                                                      •   Extended Repayment Plan: You will make
What You Need to Do                                       fixed or graduated monthly payments and repay
                                                          your loans in full over a period not to exceed 25
Your loans aren’t going to go away and you’ll             years. To be eligible for the Extend Repayment
want to repay them as quickly and easily as               plan, you must be a new borrower on or after
possible.                                                 October 7, 1998 and you must have more than
                                                          $30,000.00 in outstanding Direct Loans. (The
Exit counseling                                           same requirements apply to FFEL Loans but
You will receive a notice on exit counseling              the borrower has to have $30,000.00 in
when you graduate or attend school less than              outstanding FFEL Loans.) Your fixed monthly
half-time. At this session, you’ll be given               payment is lower than it would be under the
information on your loans and when repayment              Standard Plan, but again, you'll ultimately pay
begins.                                                   more for your loan because of the interest that
                                                          accumulates during the longer repayment
When you graduate or withdraw you will have               period. Can make graduated or fixed monthly
six months before your first payment is due.              payments.
This is called a grace period. (PLUS Loans            •   Income Sensitive Repayment Plan: For FFEL
don’t have a grace period). This time can allow           Loans only. With an income-sensitive plan,
you to get financially settled, select your               your monthly loan payment is based on your
repayment plan and determine the amount of                annual income. As your income increases or
income you need to put toward your student                decreases, so do your payments. Maximum
loan each month.                                          repayment 10 years
                                                      •   Income Contingent Repayment Plan: For Direct
Choosing a repayment plan                                 Loans only. Your monthly payments will be
There are flexible repayment plans to help                based on your annual income (and that of your
students manage this important financial                  spouse, if married), your family size, and the
responsibility. The repayment plans below are             total amount of your Direct Loans. Borrowers
for Direct and FFEL Stafford Loans.                       have 25 years to repay under this plan, the
                                                          unpaid portion will be forgiven. However, you
    •   Standard Repayment Plan: You                      may have to pay income tax on the amount that
        generally pay a fixed amount each                 is forgiven. This plan also for PLUS Loans.
        month for up to 10 years. Your
        payment must be at least $50 a month.      Federal Perkins Loans also have different repayment
    •   Graduated Repayment Plan: Your             options. Your payment depends on the amount that you
        payments start out low at first and then   borrow, but the minimum is $40 per month.
        will increase, usually every two years.
        You must repay your loan in full within
        10 years. At a minimum, your
        payments must cover the interest that
        accumulates on your loans between
        payments. This plan is tailored to
        individuals with relatively low current
        incomes (e.g., recent college graduates)
        who expect their incomes to increase in
        the future. However, you'll ultimately
        pay more for your loan than you would
        under the Standard Plan, because more
        interest accumulates in the early years

                                                       WORKING DRAFT

Estimated Monthly Payments for Direct and FFEL Stafford Loans and Total Amounts
Repaid Under Different Repayment Plans
                                                                                                          For Direct Loans Only: Income Contingentc (Income = $25,000

Initial Debt When      Standard                Extendeda                     Graduatedb                   Single                         Married/HOHd
You Enter              (not to exceed 10                                     (not to exceed 10 years)
Repayment              years)

                       Per        Total        Per Month       Total         Per Month     Total          Per Month     Total Repaid     Per Month     Total Repaid
                       Month      Repaid                       Repaid                      Repaid

$3,500                 $50        $4,471       Not available                 $25           $5,157         $27           $6,092           $25           $6,405
$5,000                 $58        $6,905                                     $40           $7,278         $38           $8,703           $36           $9,150
$7,500                 $83        $10,357                                    $59           $10,919        $57           $13,055          $54           $13,725
$10,500                $121       $14,500                                    $83           $15,283        $80           $18,277          $76           $19,215
$15,000                $173       $20,714                                    $119          $21,834        $114          $26,110          $108          $27,451
$40,000                $460       $55,239      $277            $83,289       $316          $58,229        $253          $72,717          $197          $84,352

Payments are calculated using the fixed interest rate of 6.8 percent for student borrowers for loans made on or after July 1, 2006.
  For a FFEL borrower, the requirement is that the borrower (1) must have had no outstanding balance on a FFEL Program loan as of October 7, 1998, or on the date the bo
obtained a FFEL Program loan on or after that date, and (2) must have more than $30,000 in outstanding FFEL Program loans. For a Direct Loan borrower, the requiremen
                                                                                           Consolidation loans the date the everyone and Direct Loan
the borrower (1) must have had no outstanding balance on a Direct Loan Program loan as of October 7, 1998, or on aren’t forborrower obtained ayou mightProgram l
or after that date, and (2) must have more than $30,000 in outstanding Direct Loan Program loans. The amounts were rounded to the nearest dollar and were calculated base
25-year repayment plan.                                                                    lose some benefits under this program. For more
                                                                                           information The monthly repayment amount Loans visit
  This is an estimated monthly repayment amount for the first two years of the term and total loan payment.on Direct Consolidation will generally increase every
two years, based on this plan.                                                             www.loanconsolidation.ed.gov. For FFEL
  Assumes a 5 percent annual growth (Census Bureau) and were calculated using the formula requirements in effect during 2006.
  HOH is Head of Household. Assumes a family size of two.
                                                                                      Consolidation Loans, contact your lender.

You can also find a repayment calculator at                                           Note: Private loans can’t be consolidated under the
www.FederalStudentAid.ed.gov.                                                         Federal Loan Consolidation Program.

Something else to consider:                                                           How can consolidation help me manage my debt?
                                                                                      Loan consolidation can offer you many benefits to help
Consolidation Loans                                                                   manage your education debt. You can:
A federal consolidation loan isn’t a repayment                                           • Pay lower monthly payments by increasing the
option; however, it may help making payments                                                 repayment period (this will increase your total
more manageable for some borrowers by                                                        debt amount).
combining several federal student loans into                                             • Make a single monthly loan payment on one
one loan with one monthly payment. You need                                                  bill to one lender.
to apply for loan consolidation and choose a
standard, an extended, a graduated, an income-                                        Is there a downside to consolidation?
contingent (for Direct Consolidation Loans) or                                        Although consolidation can truly simplify and help
an income-sensitive (for FFEL Consolidation                                           many students manage their monthly payments, there
Loans) repayment plan. Depending on the                                               are some cases when consolidation may not be right for
amount of your debt, standard and graduated                                           you.
repayment plans have 10 to 30 year repayment                                          If you are close to paying off your student loans, it may
periods.                                                                              not make sense to consolidate or extend your payments.
                                                                                      Remember that by extending the years of repayment for
                                                                                      your loans, you may be increasing the total amount you
                                                                                      have to pay in interest. Be sure to discuss your options
                                          WORKING DRAFT

with the financial aid office or visit              taken into account when you received federal student
www.loanconsolidation.ed.gov or call us at 1-       loans, your credit history will be affected if you do not
800-4-FED-AID to discuss loan consolidation.        repay your federal student loans under the repayment
                                                    plan you agreed to when you entered repayment. Talk
Making Your Monthly Payments                        to your lender and keep track of all communications.
When you make your payments on time, you
may qualify for certain repayment benefits and      Sample Communication Log
you are taking steps toward building a solid        Date:
credit history. Contact your lender or loan         Lender or servicer:
servicer to discuss setting up a monthly            Phone number or e-mail:
autopayment. Special discount information for       Person you spoke to:
Direct Loans is available at www.dl.ed.gov.         Reason you called:
                                                    Were your questions answer or issues resolved?
I can’t make my payments.
Your student loan debt is a legal obligation and    Preventing Default
can be a 10 to 30 year financial commitment.        Loan default is something you want to avoid at all costs
Don’t ignore debt, because it won’t go away.        because there are serious consequences:
There are many ways to get help such as
changing your payment due date, repayment               •   The entire loan balance (principal and interest)
options, deferment (you must continue to make               will be due in full immediately
payments while your deferment is processed) or          •   Holds may be placed on your college records.
forbearance. For more information on                    •   You lose your student loan deferment options
deferment or forbearance go to                          •   You won’t be eligible for additional federal
http://studentaid.ed.gov/PORTALSWebApp/stu                  student aid
dents/english/difficulty.jsp?tab=repaying.              •   Your account may be turned over to a
                                                            collection agency and you’ll have to pay
Why is this a problem?                                      additional charges, late fees and collection
If you don’t make a payment on time or if you               costs all of which become part of your debt.
start missing payments—even one—your loan               •   Defaulted loans are reported to national credit
could be in delinquent status and late fees can             bureaus and your credit rating will be damaged
be assessed. If you miss a payment for more                 for several years.
than 270 days, your loan will go into default.          •   You will have difficulty qualifying for credit
This will adversely affect you. If you are                  cards, a car loan and a mortgage.
making late or partial payments, contact your
                                                        •   Your federal and state income tax refunds can
lender or servicer immediately for help before
                                                            be withheld and applied to student loan debt.
it negatively affects your credit rating. If your
                                                            This is also called a Tax Offset.
credit rating is affected, you may be denied
                                                        •   A portion of your wages may be garnished
future education or consumer loans and, later in
life, you may not be able to obtain a mortgage
or be able to rent an apartment. If you're having       •   You may not be able to obtain a professional
difficulty making regular monthly payments,                 license, get hired by an employer that performs
contact your lender or servicer immediately to              credit checks, or be able to rent an apartment.
make other arrangements to avoid further                •   A defaulted loan may jeopardize employment
delinquency and, much worse, default.                       by city, county, state or federal agencies or
                                                            cause termination, if you are already employed.
I forgot to send my payment. Should I send              •   If you need a license to practice in your
partial payment?                                            profession, it may be revoked, cancelled or not
You need contact your lender to change your                 renewed.
repayment plan if your current one is not               •   It could take years to clear your credit record.
favorable. Although your credit history was not

                                         WORKING DRAFT

Remember, you've made a commitment to                       If you:                  Remember to:
yourself and your future. To prevent defaulting             Withdraw from            Contact your financial
on a student loan, maintain copies of your                  school                   aid office and
student loan records and keep your mailing and                                       complete Exit
e-mail address current with your lender and                                          Counseling
servicer. Ensure that your student loans are                                         Notify your lender
deferred while you are in school and                                                 Begin loan repayment
communicate your financial situation to your                                         after your grace period
lender or servicer to determine the best plan to            Drop your enrollment     Contact your financial
repay your loans and to maintain a good credit              to less than half-time   aid office and
record. It's vital to contact your lender if you                                     complete Exit
are having difficulty with repayment before                                          Counseling
your account becomes delinquent. You can                                             Notify your lender
work together to make alternative                                                    Begin loan repayment
arrangements. There’s usually a solution to                                          after your grace period
your problem, so avoid default.                             Return to the same       Apply for financial aid
                                                            school                   by completing the
Note: A loan, whether or not in default, cannot                                      FAFSA and request a
be discharged in bankruptcy in most cases.                                           deferment on your
                                                                                     federal student loans
Need to Take a Break or Can’t go to School                                           that are repayment.
Full-Time                                                   Transfer to another      Apply for financial aid
                                                            school                   by completing the
Many students change how and when they complete                                      FAFSA.
their education. You may not graduate from college in                                Request an in-school
four years or you may want to take a break from school.                              deferment
If your enrollment status changes, there are a few things   Graduate                 Complete Exit
that you, as a borrower, must take care of.                                          Counseling
                                                                                     Begin loan repayment
                                                                                     after your grace period
                                                            Go to graduate school    Apply for financial aid
                                                                                     by completing the
                                                                                     Request an in-school

                                          WORKING DRAFT

Loan Discharge or Forgiveness                       and detailed information about interest rates, fees, the
Some employers such as state or local               balance you owe and available repayment options.
governments offer loan repayment in return for          • You have the right to defer repayment for
working in a job that’s in great demand. There              certain defined periods, if you qualify.
are also programs offered by some schools that          • You have the right to request forbearance.
will assume a portion of your debt. If loan             • You may prepay your loans in whole or in part
forgiveness is something you’d like to explore,             at any time without penalty.
begin by asking at your school or workplace.
                                                    Your Responsibilities as a Borrower
What qualifies my loan for                          Your primary responsibility is to repay your loans
discharge or forgiveness?                           according to the terms and conditions of your loan
Discharge refers to the cancellation of a loan,     agreement.
even one in default, due to school closure, false       • You must also attend Entrance Counseling
certification, your death or total and permanent            before receiving loan funds and Exit
disability. Forgiveness of a loan is based on the           Counseling before leaving school.
borrower performing certain types of service            • Make payments on time, or make other
such as teaching in a low-income school. A                  arrangements with your lender or loan holder.
defaulted loan can’t be canceled based on               • Notify your lender if you change your name,
qualifying service (e.g. teaching).                         address, phone number, or enrollment status.
                                                        • Notify your lender if you’re unable to make
For a complete list of discharge and forgiveness            payments.
provisions for Perkins Loans and Stafford
Loans, check the following two charts: Perkins      Other Tips
Loan Discharge and Cancellation Summary
(Appendix D) and Stafford and PLUS Loan                     Student loans have become a fact of life.
Discharge and Forgiveness Summary                           Make a budget and stick with it. Keep a careful
(Appendix E). Or visit                                  eye on credit card spending.
http://studentaid.ed.gov/PORTALSWebApp/stu                  Open all your mail and read everything
dents/english/discharges.jsp?tab=repaying.              pertaining to your student loans. If you don’t
                                                        understand something, call your lender or your
After reviewing the conditions, if you think you        financial aid office.
qualify, you must apply with the holder of your             Keep all student loan documents in a
loan.                                                   permanent file.
                                                            Keep in contact with your lender, servicer
• Federal Perkins Loans—Check with the                  and/or holder. Let them know if you change your
school that made you the loan or with the               name, address or phone number.
school’s loan servicing agent.                              Make all regularly scheduled payments.
                                                            Ask your lender for help if you have difficulty
• Direct Loans—Contact the Direct Loan                  making payments.
Servicing Center at 1-800-848-0979. TTY users
can call 1-800-848-0983. Or, go to

• FFEL Loans—Contact your lender or its loan
servicing agent.

Your Rights as a Borrower
Before you begin repayment, your loan holder
is required to give you a repayment schedule
                                           WORKING DRAFT

Appendix A
                                                      Credit bureau
                                                      Institution that tracks and reports the manner in which
Glossary                                              borrowers repay their loans.
Capitalization                                        Default
With certain loans, such as subsidized Direct         Failure to repay a loan according to the terms of the
and FFEL Loans, the U.S. Department of                promissory note. There can be serious legal
Education pays the interest that accrues on           consequences for student-loan defaulters.
these loans while the student is enrolled at least
half-time and during periods of deferment.            Deferment
However, with subsidized loans in forbearance,        A postponement of payment on a loan that is allowed
unsubsidized loans or PLUS Loans, the student         under certain conditions and during which interest does
or the student’s parents are responsible for          not accrue for subsidized loans.
paying interest as it accrues on these loans.
When the interest is not paid, it is capitalized or   Expected Family Contribution (EFC)
added to the principal balance, which increases       Your Expected Family Contribution (EFC) is the
the outstanding principal amount due on this          number that’s used to determine your eligibility for
loan. Interest that is capitalized and therefore      federal student financial aid. This number results from
has been added to the original amount of the          the financial information you provided in your FAFSA
loan subsequently accrues interest, adding an         application. Your EFC is reported to you on your
additional expense to the loan. To save money,        Student Aid Report (SAR).
pay interest before it’s capitalized.
Cost of Attendance (COA)                              A postponement of payment on a loan, typically if the
The total amount it will cost you to go to            borrower doesn't qualify for a deferment and is unable
school—usually expressed as a yearly figure.          to make payments for a reason such as poor health.
It’s determined using rules established by law.       Interest continues to accrue during forbearance.
The COA includes tuition and fees; on-campus
room and board (or a housing and food                 Guaranty agency
allowance for off-campus students); and               The guaranty agency is an organization that administers
allowances for books, supplies, transportation,       the Federal Family Education Loan (FFEL) Program in
loan fees, and, if applicable, dependent care. It     your state. This agency is an excellent source of
also includes miscellaneous and personal              information on FFEL Loans. For the name, address and
expenses, including an allowance for the rental       telephone number of the agency serving your state, you
or purchase of a personal computer. Costs             can contact the Federal Student Aid Information Center
related to a disability are also covered. The         at 1-800-4-FED-AID (1-800-433-3243).
COA includes reasonable costs for eligible
study-abroad programs as well. For students           Half-time
attending less than half-time, the COA includes       At schools measuring progress in credit hours and
tuition and fees and an allowance for books,          semesters, trimesters, or quarters, “half-time” is at least
supplies, transportation and dependent care           six semester hours or quarter hours per term for an
expenses; and can also include room and board         undergraduate program. At schools measuring progress
for up to three semesters, or the equivalent, at      by credit hours but not using semesters, trimesters or
the institution. But no more than two of those        quarters, “half-time” is at least 12 semester hours or 18
semesters, or the equivalent, may be                  quarter hours per year. At schools measuring progress
consecutive. Talk to the financial aid                by clock hours, “half-time” is at least 12 hours per
administrator at the school you’re planning to        week. Note that schools may choose to set higher
attend if you have any unusual expenses that          minimums than these. You must be attending school at
might affect your cost of attendance.                 least half-time to be eligible for a Stafford Loan. Half-

                                           WORKING DRAFT

time enrollment is not a requirement to receive      Secondary Market
aid from the Federal Pell Grant, Federal             An organization that purchases education loans from
Supplemental Educational Opportunity Grant,          lenders, which enables lenders to make new loans.
Federal Work-Study and Federal Perkins Loan
programs.                                            Student Aid Report (SAR)
                                                     After you apply for federal student financial aid, you’ll
Interest                                             get your FAFSA results in an e-mail report within a few
A fee charged in exchange for borrowing              days after your FAFSA has been processed or by mail
money. It is calculated as a percentage of the       in a few weeks. This report is called a Student Aid
amount borrowed.                                     Report or SAR. Your SAR details all the information
                                                     you provided on your FAFSA. If there are no
Lender                                               corrections or additional information you must provide,
The institution that provided money for loans        the SAR will contain your Expected Family
                                                     Contribution (EFC), which is the number that’s used to
Loan holder                                          determine your eligibility for federal student aid.
The institution with legal title to your loans. It   Whether you applied online or by paper, we will
could be your school (for Perkins), the              automatically send your data electronically to the
Department of Education (for Direct Loans and        schools you listed on your FAFSA.
defaulted FFEL or Perkins loans that have been
assigned to the Department), a lender                Subsidized Loan
participating in the FFEL Loan Program (for          Awarded to a student on the basis of financial need.
FFEL Loans), a secondary market, or in the           The federal government pays the borrower’s accrued
event of default, a guaranty agency.                 interest during some significant periods, such as when
                                                     the student is in school, thereby “subsidizing” the loan.
Loan Servicer
An organization that administers and collects        Unsubsidized Loan
education loans payments on behalf of the            Is not need based; the borrower is responsible for
lender.                                              accrued interest throughout the life of the loan.

Principal                                            Variable Interest
The amount borrowed and owed on a loan or            Rate of interest on a loan that is tied to a stated index
loans at any given time. Interest is charged on      and changes annually.
this amount. The principal balance may include
capitalized interest.

Promissory Note
A promissory note is a binding legal document
you sign when you get a student loan. It lists
the conditions under which you’re borrowing
and the terms under which you agree to pay
back the loan. It will include information on
how interest is calculated and what deferment
and cancellation provisions are available to the
borrower. It’s very important to read and save
this document because you’ll need to refer to it
later when you begin repaying your loan or at
other times when you need information about
provisions of the loan, such as deferments or

                                           WORKING DRAFT

Appendix B
                                                     Check the terms and fine print carefully. Not all
                                                     students can take advantage of all the benefits lenders
Informed Borrowing: Selecting                        advertise. Choose the loan that offers the best upfront
Loans and Selecting Lenders                          discounts, such as waiving both origination and default
                                                     fees, or other immediate discounts. Benefits that are
Before you search for the best student loan out      promised several years down the road usually won't
there, you need to take advantage of funds           help you if you consolidate your loans or get into
available through scholarships and grants            financial trouble.
offered by the government, charities,
workplaces, professional organizations, etc.         You can find more advice and calculators at
After you have received all you can in               http://studentaid.ed.gov/PORTALSWebApp/students/e
scholarships and grants, your next option is a       nglish/repaying.jsp.
student loan. Here are some things to

Go with the federal student loan programs
Federal programs such as Perkins and Stafford
Loans for students and PLUS Loans for parents
and graduate and professional degree students
have fixed interest rates ranging from 5 to 8.5
percent. Private or alternative loans typically
have interest rates that rise and fall with the
economy. Private loans rely on credit reports;
federal student loans don't.

Fill out a Free Application for Federal
Student Aid (FAFSA) to see which federal
loans you can qualify for. Subsidized Stafford
loans charge a fixed 6.8 percent rate starting six
months after you leave school. If you don't
qualify for a subsidized Stafford Loan, your
next option is an unsubsidized Stafford Loan,
which charges interest immediately but gives
you the option of not paying interest until six
months after you leave school. Parents and
professional and graduate degree students can
borrow from the PLUS program at rates capped
at 8.5 percent.

Preferred-lender lists
When you get a Stafford Loan, your school will
give you the option of choosing a lender from
their preferred-lender list. (Only about 20
percent of schools have students borrow
directly from the federal government through
the Direct Stafford Loan Program; at all other
schools, you will need to choose a lender.) The
preferred lender list is only a starting place
when shopping for financing.

                                  WORKING DRAFT

Appendix C

Calculating Your Budget
        Monthly Expenses                  Susan’s Budget   Your Budget
        Rent/Mortgage              33%        $440
        Groceries                  15%        $200
        Clothing                    5%         $65
        Car payments &             12%        $160
        Utility bills (gas,         7%         $93
        electric, water,
        telephone, cable)
        Medical (insurance,         5%         $67
        doctor visits, etc.)
        Entertainment &             7%         $93
        recreation (dining out,
        movies, music,
        vacation trips)
        Other debts (including      5%         $67
        credit card debt)
        Miscellaneous/Savings       5%        $67
        Student loan payments       6%        $81
        TOTAL                      100%      $1,333

                                                 WORKING DRAFT

Appendix D

Perkins Loan Discharge and Cancellation Summary Chart
             Cancellation Conditionsa                                       Amount Forgiven
             Bankruptcy (in rare cases—cancellation is                      100 percent
             possible only if the bankruptcy court rules that
             repayment would cause undue hardship)
             Closed school (before student could complete                   100 percent
             program of study)—applies to loans received
             on or after Jan. 1, 1986
             Borrower’s total and permanent disabilityb or                  100 percent
             Full-time teacher in a designated elementary or                Up to 100 percent
             secondary school serving
             students from low-income familiesc
             Full-time special education teacher (includes                  Up to 100 percent
             teaching children with disabilities in a public or
             other nonprofit elementary or secondary
             Full-time qualified professional provider of                   Up to 100 percent
             early intervention services for the disabled
             Full-time teacher of math, science, foreign                    Up to 100 percent
             languages, bilingual education, or other fields
             designated as teacher shortage areas
             Full-time employee of a public or nonprofit                    Up to 100 percent
             child- or family-services agency providing
             services to high-risk children and their families
             from low-income communities
             Full-time nurse or medical technician                          Up to 100 percent
             Full-time law enforcement or corrections                       Up to 100 percent
             Full-time staff member in the education                        Up to 100 percent
             component of a Head Start Program
             Vista or Peace Corps volunteer                                 Up to 70 percent
             Service in the U.S. Armed Forces                               Up to 50 percent in areas of hostilities or
                                                                            imminent danger
 As of Oct. 7, 1998, all Perkins Loan borrowers are eligible for all cancellation benefits regardless of when the loan was made or the terms of
the borrower’s promissory note. However, this benefit is not retroactive to services performed before Oct. 7, 1998.
  Total and permanent disability is defined as the inability to work and earn money because of an illness or injury that is expected to continue
indefinitely or to result in death. If you are determined to be totally and permanently disabled based on a physician’s certification, your loan will
be conditionally discharged for up to three years. This conditional discharge period begins on the date you became totally and permanently
disabled, as certified by your physician. During this conditional discharge period, you do not have to make payments on your loan(s). To qualify
for a final discharge due to total and permanent disability, you must meet the following requirements during the conditional discharge period:
(1) your earnings from employment must not exceed the poverty line amount for a family of two; and (2) you must not receive any additional
loans under the FFEL, Direct Loan or Perkins Loan programs. If you do not continue to meet these requirements at any time during or at the
end of the conditional discharge period, your loan(s) will be taken out of conditional discharge status and you must resume making payments on
your loans. You cannot qualify for loan discharge based on a condition that existed before the loan was made, unless a doctor certifies that your
condition substantially deteriorated after you obtained the loan. For more information on qualifying for this discharge, review your promissory
note and Borrower’s Rights and Responsibilities Statement or contact your loan holder.
 Detailed information on teaching service cancellation/deferment options can be found at www.FederalStudentAid.ed.gov. At the site, click on
“Students, Parents and Counselors.”
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Appendix E

Stafford and PLUS Loan Discharge and Cancellation Summary Chart

             Discharge/Forgiveness                    Amount Discharged/Forgiven                Notes
             Borrower’s total and                     100 percent                               For a PLUS Loan, includes the
             permanent disability or death.+                                                    death, but not disability, of the
                                                                                                student for whom the
                                                                                                parents borrowed.
             Full-time teacher for five               Up to $5,000 (up to $17,500               For Direct and FFEL Stafford
             consecutive years in a                   for teachers in certain                   Loan borrowers with no
             designated elementary or                 specialties) of the total loan            outstanding balance on a Direct or
             secondary school serving                 amount                                    FFEL Loan on the date they
             students from low-income                 outstanding after completion              received a loan. PLUS Loans are
             families. Must meet additional           of the fifth year of teaching.            not eligible. At least one of the
             eligibility requirements.                                                          five consecutive years of teaching
                                                      Under the Direct and FFEL                 must occur after the 1997-98
                                                      Consolidation Loan programs,              academic year.
                                                      only the portion of the
                                                      consolidation loan used to                To find out whether your school is
                                                      repay eligible Direct Loans or            considered a low-income school,
                                                      FFEL Loans qualifies for loan             go to
                                                      forgiveness.                              www.FederalStudentAid.ed.gov.
                                                                                                Click on “Students, Parents and
                                                                                                Counselors.”. Or call 1-800-4-
                                                                                                FED-AID (1-800-433-3243).
             Bankruptcy (in rare cases)               100 percent                               Cancellation is possible only if
                                                                                                the bankruptcy court rules that
                                                                                                would cause undue hardship.
             Closed school (before student            100 percent                               For loans received on or after Jan.
             could complete program of                                                          1, 1986.
             study) or false loan

             False loan certification now             100 percent                               Effective July 1, 2006
             includes identity theft
             School does not make required            Up to the amount that the                 For loans received on or after Jan.
             return of loan funds to the              school was required to return.            1, 1986.
 Total and permanent disability is defined as the inability to work and earn money because of an illness or injury that is expected to continue
indefinitely or to result in death. If you are determined to be totally and permanently disabled based on a physician’s certification, your loan will be
conditionally discharged for up to three years. This conditional discharge period begins on the date you became totally and permanently disabled, as
certified by your physician. During this conditional discharge period, you do not have to make payments on your loan(s). To qualify for a final
discharge due to total and permanent disability, you must meet the following requirements during the conditional discharge period: (1) your earnings
from employment must not exceed the poverty line amount for a family of two; and (2) you must not receive any additional loans under the FFEL,
Direct Loan or Perkins Loan programs. If you do not continue to meet these requirements at any time during or at the end of the conditional
discharge period, your loan(s) will be taken out of conditional discharge status and you must resume making payments on your loans. You cannot
qualify for loan discharge based on a condition that existed before the loan was made, unless a doctor certifies that your condition substantially
deteriorated after you obtained the loan. For more information on qualifying for this discharge, review your promissory note and Borrower’s Rights
and Responsibilities Statement or contact your loan holder.

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Appendix F

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Appendix G